United States tariff hike on Turkey fails to make economic sense

U.S. President Donald Trump said on Friday he had authorized higher tariffs on imports from Turkey, imposing a 20 per cent duty on aluminum and 50 percent one on steel, as tensions mount between the two North Atlantic Treaty Organisation allies over Ankara's detention of an evangelical pastor and other diplomatic issues.

Relations with Washington worsened further Friday when Trump tweeted that he had authorized a 20 percent duty on aluminium and 50 percent duty on steel. "Our relations with Turkey are not good at this time!" he said.

Trump's latest tariff decision reflects increased tensions between the two countries, which intensified in late July after the U.S. demanded freedom for Pastor Andrew Brunson, a United States citizen detained in Turkey, the report said.

Mr Trump's tweet caused a further drop in the Turkish currency, which is now down 13% on the day.

Turkey is also frustrated at US unwillingness to extradite Turkish cleric Fetullah Gulen, who Erdogan accuses of staging a failed 2016 coup attempt.

Ruhsar Pekcan said in a statement the move would not only have an impact on Turkey but affect USA companies as well.

Although Erdogan struck a defiant tone, his foreign ministry called for diplomacy and dialogue to solve problems with Washington and Trade Minister Ruhsar Pekcan said "we implore President Trump to return to the negotiating table".

Trump remarked that Turkey's currency, the lira, was weakening against the USA dollar, a phenomenon that had made existing tariffs less effective.

Turkey's trade ministry said the tariffs were against World Trade Organization rules. Erdogan claims higher rates lead to higher inflation - the opposite of what standard economic theory says.

In U.S. economic news, the Labor Department released a report showing a modest increase in consumer prices in the month of July. U.S. President Donald Trump introduced a round of sanctions on August 1, preventing the Turkish justice an interior ministries from doing business with U.S. businesses.

Mr Erdogan said during an address to supporters: "Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks".

But President Erdogan brushed off any concerns during a speech in the northeastern city of Bayburt on Friday, saying: 'The dollar can not block our path.

The defiant tone and war rhetoric only hurt the lira more, before Erdogan's finance chief and son-in-law, Berat Albayrak, tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank.

The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting.

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday.

The currency drop is particularly painful for Turkey because the country finances a lot of its economic growth with foreign investment.

"The last time I can remember a currency exploding into a similar acceleration of weakness to what we have seen in the past 24 hours is the Russian ruble crisis that transpired late in 2014", Jameel Ahmad, the head of currency strategy at FXTM, said.

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